Compared to the UK and other developed countries, and like many of its near neighbours such as Korea and China, Japan is under accelerated pressure to tackle demographic changes in its labour market.  In this article, we look at a number of initiatives Japan is considering to tackle these challenges and how these compare to the situation in the UK and across Europe.

Ageing of Japan’s population

Japan’s population is ageing faster than any other on the planet. At present, approximately 22% of the population is aged 65 or above, and the Japanese Health Ministry estimates that this will increase to 38% by 2055.  This throws up a number of labour-related issues. 

Japan needs younger workers

The ageing population will need to be supported by an ever-decreasing proportion of younger workers.  Older workers have traditionally benefited from greater job security and higher salaries, but little flexibility in their working arrangements when nearing retirement. Employers will be confronted with workforces that increasingly need to balance their work with caring for young families, elderly parents and grandparents.

Labour market reforms for older workers

Prime Minister Shinzō Abe is in the process of implementing the Second Stage of ”Abenomics” (his flagship economic reform agenda).   This plan sets out a number of measures aimed at reforming the labour market.  The three “critical pillars” of reform are:                                        

• encouraging skilled foreign nationals to come to Japan to work;

• enabling and encouraging the participation of women in business and the workforce;

• reforming aspects of labour regulation so as to prioritise productivity over presenteeism, encourage the use of more flexible forms of employment such as short-term or part-time contracts, and make it easier for retirees to remain in or re-enter the workforce on a more flexible basis – in short, to make a rigid labour market more flexible.

Race demographics in Japan

Japan is not very ethnically diverse: 98.5% are Japanese. This is changing as the nation looks to attract more migrant labour to plug skills gaps in different industries.

Increasing immigration is leading to racial diversity

Japan has traditionally been conservative in its immigration policy and ex-patriates have found it difficult to secure long-term working visas in Japan.  This is in stark contrast to migration in the EU. Although there is public concern about high immigration levels (and a number of measures have been introduced to try to address this), the number of skilled foreign workers in the UK is still high. For example, the proportion of foreign-born people in employment in the UK increased from 7.2% in 1993 to 16.7% in 2014. 

Japan aims to increase migrant labour

The shrinking workforce and the shortage of skills in Japan have made attracting foreign labour a necessity.  Abenomics sees utilising skilled IT professionals from India, Vietnam and other countries in which technology is a thriving industry, as key to revitalising the economy and increasing global competitiveness by encouraging innovation.  The aim is to double the number of IT professionals from overseas from 30,000 to 60,000 by 2020.  Reforms which took effect in 2015 relax visa requirements for “Highly Skilled Foreign Professionals” and create a new type of residence status with an unlimited period of stay.  Further proposed reforms will allow greater numbers to enter the Technical Intern Training Program, enable foreign nationals qualified as care workers to study and enter employment in Japan and allow foreign nationals working at subsidiaries of Japanese companies in certain sectors to work in Japan. 

Interestingly, despite the differences with Japan’s immigration policy, a number of EU countries face a mismatch of skills in certain sectors. The political and public focus on immigration policy means that relying on foreign labour is unlikely to provide the full solution for businesses trying to plug the skills gap.  According to the CIPD, net migration entering the UK over the next 20 years is likely to be 2.3 million, compared to 4.9 million between 2001 to 2011. As a result, the future focus for many companies in the UK is likely to increasingly be on building robust and varied educational paths to work and facilitating flexible working to access untapped talent pools. 

Gender demographics in Japan

Comparisons with the UK

The UK faces challenges in getting women back into productive work following childbirth and maternity leave, although relatively recent legislative reforms (such as the right to request flexible working and shared parental leave) are having a positive impact.  The UK is further ahead than Japan in this respect. 

Gender stereotypes make it hard for women to work

The traditional model of “career track” employment in Japan is not conducive to a family life in which both parents work.  Work is normally full-time and inflexible.  Working hours are prolonged due to excessive overtime and a culture of presenteeism, with some companies requiring employees to transfer to other parts of the country or abroad.  Childcare places are also in short supply, with waiting lists for parents wishing to return to work commonplace.  These factors are thought to have also contributed to the continually low birth-rate in Japan, which hit a record low of 1.26 children (for each woman in her lifetime) in 2005.  Since then although the birth rate had been increasing slowly, it suffered another dip in 2014 to 1.42.   

Employment law changes may increase female participation

Abenomics envisages that the following initiatives will enable more women to return to the workforce and allow families (including fathers) to better balance work with caring responsibilities:

• secure additional childcare capacity for approximately 400,000 more children by the end of FY2017, including by training nursery teachers;

• increase childcare leave benefits from 50% to 67% of salary for the initial 6 months;

• change the culture of prolonged working hours and overtime, primarily by narrowing the scope of circumstances under which overtime needs to be paid;

• oblige employers to specify the percentage of women in executive posts in their Annual Securities Report (a statutory annual report); and

• make information regarding the promotion of women publicly available e.g. via the Cabinet Office Website.

Employment law reforms to deal with demographic changes

Overtime restrictions may help more women into work

At the top of the reform agenda is to tackle the culture of long hours which the typical “salaryman” (i.e. the full-time, regular “career” employee) spends in the office.  Under Japanese law there is a limit on weekly working hours (40 hours a week, 8 hours a day) but overtime can be worked and is paid at a higher rate. 

Around 22% of Japanese work more than 49 hours a week, compared with 16% in the US and 11% in France and Germany.   Although employees are entitled to take paid statutory annual leave (up to 20 days, depending on length of service), many do not feel able to take their full quota, and even where holiday is taken it is often used for occasions such as funerals and sick leave. 

Prime Minister Abe recognises that the additional time spent in the office has not translated into increased productivity and his policy reforms aim to bring an end to the practice. A bill submitted to the Japanese Diet in 2015 proposed to revise the rules on eligibility for overtime and force employees to take at least five days of paid holiday each year (by obliging employers to designate such days).

Remaining in the office out of a sense of duty or loyalty is deeply ingrained, and work is commonly judged on the basis of how many hours are spent at work or the quantity of work, rather than on the quality of the work or results produced.  The overtime reforms will increase the categories of employee who are not eligible for paid overtime (as is the case for the majority of white-collar workers in the UK).  In theory, workers will be incentivised to get their work done within the eight hour work day rather than stay any longer.  However, critics say that this kind of reform is unlikely to free workers to leave the office.  Rather, they will no longer get paid for excessive hours but they will still feel obliged to work them even where there is no real need. The intense stress some Japanese workers face was exemplified when a restaurant chain was ordered by a court in Tokyo to pay around £320,000 to the family of a former manager who hanged himself owing to the long hours he worked in the months before his death (around 200 hours of overtime a month). There is even a Japanese term (karoshi) for “death from overwork”. Cultural changes to attitude will be needed to ensure these reforms have a positive impact on employees in practice.

“Regular” vs “non-regular” employees

The proposed reforms relating to overtime and annual leave focus on trying to change the labour rules for so-called “regular” employees (i.e. those who work full time, normally in a “career” position) and who are very difficult to dismiss.

Abenomics also aims to support those who prefer not to be on the career track to access work – such as those who are retired, or parents/carers wanting a more flexible working pattern. 

In Japan, non-regular or “contract” employment, which includes part-time and fixed-term work, has always been insecure (i.e. limited by term and without the benefits of “regular” employment).  This makes this type of working arrangement unattractive and hampers the ability for many to maintain a stable family life.  Amendments to the Part-Time Employment Act have removed the need for part-timers to have an open-ended contract in order to quality for certain employment benefits.  In addition, a governmental committee recommended in 2014 that use of a third category of employee should be promoted: the “limited regular employee” – an individual on an open-ended contract but with some limitation on their duties (such as geographical area, job scope and/or working hours).  This provoked some heated debate and opposition, but in practice many companies have already been converting some of their contract workers onto open ended contracts. 

Agency (or “dispatch”) workers

The law on use of agency or “dispatch” workers has also been amended recently in the face of strong union opposition.  The changes will allow companies to use this type of working arrangement for longer periods of time without needing to take on a permanent member of staff.  However, this may well widen the gulf between “regular” employees and those in unstable work.

Although the UK has a more flexible labour market, it continues to face significant challenges in boosting its productivity rate. In Sweden, some businesses have shifted to a six-hour working day in a bid to improve productivity.  Greece has some of the longest hours of any EU country but their productivity is stubbornly low.

Although Japan seems unlikely to adopt the Swedish model of shorter working days, steps could be taken to improve the culture of working such long hours. Despite appearing to be a nation fascinated by robots and technology, the technological reality in the workplace is in fact very different in Japan. Many Japanese companies lag behind modern IT practices.  Adapting modern IT practices could be a way of boosting efficiency and workplace productivity.  

What’s next?

Many of the proposed employment reforms remain in limbo.  If passed, it will take some time to see the extent to which they will help Japan cope with the changing demographic situation.  It is also likely that whilst these reforms may well facilitate change in the labour market, there are deep-seated cultural changes that need to be addressed at the same time.

By Abi Frederick, Lewis Silkin

This is the third in a series of articles looking at how different APAC countries are responding to the changing world of work.

Part one: "A Korean Perspective on the changing world of work"

Part two: "Is the Great Wall of workplace sex discrimination crumbling down?" 

 

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